Flood cover rises to unaffordable levels

Thousands of Australians are facing soaring insurance premiums for flood cover, forcing many to ditch protection even as the risk of extreme weather increases.

Insurers blame the increases on the spate of flooding across much of eastern Australia in recent years - with another $733 million hit to insurers from January's big wet in Queensland and NSW - as well as improvements in flood mapping.

For Tina Taylor, the premium increase is steep for her hobby farm on the bank of the Colo River, a tributary of the flood-prone Hawkesbury River.

When insurer NRMA recently quadrupled her premium from $2000 to $8250, she was forced to drop flood cover. Other flood policyholders have faced increases of 500 per cent.

"People are prepared to pay a reasonable amount for insurance but, when the cost is unrealistic, you just go without," Mrs Taylor said.

For others, the increase is harder to fathom. One resident of Seven Hills in Sydney’s west, was told by NRMA that her annual premium would more than triple to $3600 even though the council rates her house as having less than a one-in-10,000 year risk of flooding.

Big wets to blame

Insurers blame the increases on the spate of flooding across much of eastern Australia in recent years including a $2.5 billion billion bill for the 2011 Queensland floods – with another $733 million hit from January’s big wet in Queensland and NSW.

The chief executive of the Insurance Council of Australia, Rob Whelan, said premiums financed claims and, if claims went up, companies needed to increase premiums. "Price signals are incredibly important as to the level of their risk.''

Insurers also say the creation of a National Flood Insurance Database has improved their ability to assess hazards.

“In some cases, we may have updated our flood mapping or are now able to better identify a property’s exact location on a block,” Andy Cornish, chief executive of NRMA, explaining the premium hikes.

Mr Whelan said 2 per cent of Australian homes are at “extreme risk” from flooding. The industry knows where they are and will price accordingly – even if that makes policies unaffordable.

Grafton narrowly avoided flooding last month when its 17 kilometres of levees just held.

"Nobody near the [Clarence River] or the levee has flood insurance," the mayor of Clarence Valley Council, Richie Williamson, said. "Insurance is a very real issue" with annual premiums costing as much as $10,000, he said.

Mitigating circumstances

The issue of those most needing flood insurance being unable to pay for it may come to a head next month when the federal government is due to respond to the Productivity Commission’s report on barriers to effective climate change adaptation.

Catastrophes cost insurers almost $10 billion in the five years to 2012, triple the previous five years’ level, and are expected to climb as a warming atmosphere makes intense rainfall events more likely, climate scientists say.

Flood mitigation efforts may focus on regions such as the Nepean-Hawkesbury valley. It is “potentially one of the most at-risk areas from flooding in Australia,” according to ICA’s Mr Whelan.

John Miller, the 83 year-old spokesman of the local flood mitigation action committee, has campaigned for decades to have the wall of the Warragamba Dam raised 23 metres, as outlined in a 1995 environmental impact study.

The contruction cost, now about $500 million, should be weighed against exposing at least 56,000 homes flooding in the event of a repeat of the monster flood of 1867.

A flood that size would cost “far more than Queensland has ever seen,” he said. “We’re trying to get the money before the flood."

Flood way

On McGrath Road at McGrath's Hill just south of Windsor, houses must be built to two storeys. Even so premiums for some houses have increased six-fold in the past year from $1200 to $8000.

Barbara Harris, a nearby resident has a particular reason to worry about floods.

Her insurer, NRMA, recently hiked the annual cost of her premium including flood coverage from $840 to $4800, forcing her to drop protection from inundation. One friend was offered flood coverage for $10,000 a year.

At a height of 16 metres above the nearby South Creek, the base of Ms Harris’s house is roughly at the one-in-100 year flood level. However, Ms Harris says earthworks by neighbours and nearby road construction mean her horse paddocks and buildings are at greater risk – just as insurance is being priced out of her reach.

“It’s definitely more vulnerable,” she said. “If we do get a big flood, we’ll be gone.”

Ms Harris, who uncle Bill Harris was an engineer on the giant Warragamba Dam during its construction more than 50 years ago, said she has little choice but to stay put and hope the 21-year abeyance of major flooding of the Hawkesbury River continues.